Word problem help

Question

Rebecca put 24,000 in an education account on the day her daughter was born. If the account earned 6.85% interest compounded monthly, what was the total in the account when her daughter turned 18? Round the answer to the nearest cent

 

I'm trying to solve this, but just need some help

Answer 1

Interest problems almost always require a calculator. But you need to know what equation to use and how to input the numbers.

 

Here is the equation for compounded interest: (Note, your textbook may use different letters, so I'll explain each one)

 

F=P(1+i/n)^nt

 

• F = your future amount (sometimes A is used)
• P = your present amount, or starting amount. Sometimes you'll see something like A₀ used for this value
• i = your interest rate, sometimes r is used. MAKE SURE THIS IS IN DECIMAL FORM! If the interest is 6.85% as above, your i=.0685
• n = compounding periods PER YEAR. This is typically 12 for monthly, 4 for quarterly, or 1 for yearly
• t = time IN YEARS, so nt = number of compounding periods

 

For your problem, you want F = 24,000(1+.0685/12)^18*12

 

Careful calculator use should give F = $82,067.98 (always round to two decimal places unless other directions are given)